Why I Can’t (or won’t) Sell Your Business

According to some reports, as many as 500,000 businesses change hands each year. The number is expected to increase as the baby boomers retire and sell their companies. In fact, we are on the cusp of the greatest wealth transfer in history – more than $30 Trillion will be changing hands from one generation to the next. A significant portion of that money will be used by the younger generations to start or acquire businesses.

Before you start licking your chops on your pending windfall….on big dreams of cashing out….the bad news is the vast majority of businesses will not sell. Most will either shut down or fade into oblivion. Only about 20%-30% of all businesses listed for sale will sell. The primary reason is because most businesses are NOT good businesses.

So let’s assume you have a pretty good business. Selling it can still be a big challenge. The odds are still against you. There are a lot of pretty good businesses and it takes a lot of work to sell them. Many would-be entrepreneurs would just as well invest their money into starting one from scratch.  There is an art and a science to finding the right buyers, with the right business proposition. My purpose here is to help you (greatly) improve your chances of a successful exit.

Let’s first dispense with why I WON’T sell your business:

(1) You asked me (and a bunch of other brokers) to bring you a buyer and “IF” the deal closes you will pay a success fee. Sorry, only a fool takes an “open listing.” It may be an acceptable practice in real estate, but no self-respecting business broker or M&A pro would waste their time.

There are all kinds of reasons why open listings are bad for business brokers, which I won’t elaborate on in this piece. Suffice it to say that history proves the odds of getting paid – even when a broker brings a seller a qualified buyer on an open listing – are next to nil. There are just too many good businesses to sell with a guaranteed pay-day for a job well done, than to waste time and money on an open listing.

(2) You’re not really serious about selling, you’re only testing the waters to see what price and buyer interest your company might fetch. Any good business broker can sniff this out. There are probably a lot of newbies who will happily jump through hoops for you. I’m not one of them. I’m not going to waste my time or burn credibility with buyers unless you are serious and prepared to sell.

(3) You have completely unrealistic expectations on price and time frame for a successful sale. I’m good, but I’m not good enough to get you twice as much as your business is worth. Nor can I sell your business in three weeks.

It is the practice of some business brokers to list the business at whatever price the seller wants, even if they know the price is ridiculous. They do this to get the listing and lock up the seller for a year or more in an exclusive contract. After six months of zero activity, when the seller is screaming for results, the broker says the only option is to slash the price. “But hey,” they say, “it was worth a try, there might have been someone out there willing to pay that price.” As long as I have been involved in starting, buying and selling businesses (30+ years), I have yet to meet a stupid buyer.

If you are not realistic about the price of your business and time frame for a successful exit, I won’t even take the assignment. It would be a waste of both of our time. I only take assignments that I truly believe will result in a closing within 12 months. If you don’t have 12 months and MUST sell within 90 days, you might want to see a bankruptcy attorney instead of a business broker.

Now on to why I CAN’T sell your business:

(1) You let the business go to sh*t shortly after listing it. You mentally and financially checked out. You took your eye off the prize. You didn’t restock inventory. You stopped paying vendors. Your LLC, state licenses, or local permits were not renewed. Your lease is in default. The place is a mess. Your best employees got wind of the sale and left.

(2) Your records are not provable. The numbers you gave me to value your business are not supported by tax returns, bank statements, or financial statements. I know you’re an honest person and somehow misplaced the shoe box containing all of your records, but guess what? The buyer is not going to take your word for it.

(3) You’re non-responsive to buyer inquiries and my questions and advice. My job is to shield you from tire-kickers and pretenders who are not qualified to buy your business. But when I have a “hot” one, I need you to take phone calls, schedule a tour of the business, and generally be available to answer the buyer’s questions and provide back-up data. The business is not going to sell itself and there is only so much facilitation I can do.

(4) You’re not letting me do my job. You’re negotiating in bad faith, micro-managing due diligence, making unreasonable demands of the buyer, and are an emotional wreck. I know you LOVE your business. You have your blood, sweat and tears into it. Your business has been your life, but you need to step back now and get out of your own way.

(5) The assets have deteriorated or have been steeply discounted by prospective buyers. The value proposition we were offering was something other than a going business with well-documented financials. It was technology, patents, trademarks, goodwill, or other intangible assets. You may not have had any revenue. Since listing your business, a new entry in the market has made those assets a lot less valuable, or perhaps worthless. Perhaps the regulatory environment changed, impacting the viability of the assets. In any case, you are holding firm to the full price and it no longer reflects economic or market realities.

(6) You’re balking on your willingness to offer seller financing. We agreed you would finance 20%-50% of the price, or perhaps be open to an earn out, stock, or deferred payments. You now want full price and 100% cash. That may impact the buyer’s ability to finance the full purchase. Plus, an all-cash deal is typically subject to a 20% discount off the price – and all savvy buyers know that. They are not going to pay more than necessary, especially if a business similar to yours can be purchased 20%-30% cheaper.

In Summary:

Most businesses don’t sell. You can vastly increase your odds of selling your business by avoiding the missteps outlined herein. It’s best to start the process 6 months to 1-year before listing it. Find a good business broker or M&A intermediary to be your champion – and then take his or her lead. You can always try to sell your business yourself, but remember the old adage about the guy who represents himself: he has a fool for a client. Don’t leave your exit to chance. Selling your business is one of the most important things you will ever set out to do. And if done right, can set you for life. Good luck!

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Should You Start and Build a Company with the Exit in Mind?

Most newbie entrepreneurs would probably answer, “Yes, of course, it’s always best to start and build a company with the exit in mind. Every entrepreneur knows that!” Not so fast. The correct answer is, “it depends” or “probably not.” What say you?

There are two schools of thought on this subject. The first school, advocated by angel investors and VC’s, is by far the most vocal. They preach exit from day one. The second school, advocated by many successful, long-time entrepreneurs (and their trusted advisors), is seldom represented in this debate. To them, the question is moot. They would say the exit should be the last thing on the minds of the founders in the early years.

It’s easy to understand why the investor viewpoint has become conventional wisdom. It’s been drilled into the head of every entrepreneur that has attended or presented at a pitch event to ALWAYS have an Exit Slide. This slide typically lists the companies that are likely acquirers of the startup. The slide sometimes includes the comps of a potential acquirer’s recent acquisitions – showing how they paid a gazillion dollars for a startup that was only 3 years old and made everyone, especially the investors, very rich. Yeah!

So here’s the real deal. Investors do not have the same objectives as *true* entrepreneurs. Most don’t even have the founder’s or the startup’s best interests at heart. They probably like the founder, the product and the space, otherwise they would not have invested. But what they LOVE unequivocally, above everything else, is getting OUT – hopefully with a very nice gain. Only in the case where your company has a reasonable shot of being among the 1% of all startups capable of attracting venture capital, should you even give this question serious thought.

An investor’s objectives are often at odds with an entrepreneur’s objectives, and can be a huge distraction in building a successful business when the emphasis is on exiting. Trust me on this one, I’ve lived it. That said, most startups have NO chance of raising venture capital. So why do so many first-time founders love to talk about the exit? Most are not in it for the right reasons.

A *true* entrepreneur is not looking to start and cash out in three or four years. If that’s how you think about it, you should seriously reconsider whether entrepreneurship is for you. You would be what seasoned entrepreneurs would call an entrepreneur-interloper. Ask any successful, long-time entrepreneur, if they started and built their company with the exit in mind, and I guarantee you most would say something like: “Not really, if anything it was a theoretical question and I never dwelled on it. I always thought that if I just focused on building a successful business, the exit would take care of itself.”

A successful entrepreneur sees his or her company as an extension of himself or herself. His or her company is integral to his or her long-term vision and goals – his or her life’s work. Entrepreneurs can not imagine “exiting” in a few years, unless they are close to retirement or are burned out after building and running a company for many years. They are very focused on disrupting an industry or changing the world, not on getting rich quick…not on dumping their company on the first corporate suitor.

I personally would never invest in a founder who wanted to start a company for the sole purpose of cashing out in a few years and moving on to something else. It’s a big red flag. It says, “no commitment…no passion…just show me the money.” Every great founder I ever met was dragged to the M&A table kicking-and-screaming, not running there with a big smile and their hands out.

The great entrepreneurs of our time – and you know who they are – did not start or build their companies with the exit in mind. They certainly may have started and built their companies with an eye towards exiting their investors, by going public or having new investors buy-out the old investors with a handsome return. But they did not think about “selling out” or “exiting themselves” in the short-term. Those who did either had to sell, or they regret having sold too soon.

Build amazing products and services that millions of people will love. Attract the best people who also want to take the long journey with you. The exit will take care of itself. And it will come in its own time.